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Optical/IP

Force10, Turin to Merge

After years of IPO talk and more than $400 million in VC backing, Force10 Networks Inc. is to merge with fellow Ethernet vendor Turin Networks Inc. in what looks like a defensive consolidation move. (See Turin, Force10 Announce Merger.)

An announcement is due to be made at noon Eastern time today, though financial details are not due to be revealed. Henry Wasik, currently Turin's president and CEO, will continue in those roles at the new company, which will be called Force10 Networks Inc.

Current Force10 CEO James Hanley, who only took on that job in November 2008, will become president, field operations, with responsibility for sales, marketing, services, and business development. The merger is expected to close in March 2009.

It's unclear what cost-cutting measures will be implemented once the merger is complete, though it seems inevitable that the initial combined workforce of around 900 staff will be reduced.

The merger looks like a defensive move as belts tighten in the service provider and enterprise markets, and competition intensifies in the consolidating Ethernet switch sector: Both companies are smallish vendors that stand a better chance of surviving as part of a larger company. (See Brocade Takes Aim at Cisco (& Juniper) and Feature Story: Juniper's Enterprise Vision.)

Not that the merger will create an enormous vendor.

Despite having delivered its products to more than 750 (mostly enterprise) customers during its near 10 years in business, Force10, best known for its 10 Gigabit Ethernet data center switches, is believed to have annual revenues of between $50 million and $100 million, though unconfirmed information on ZoomInfo suggests its sales could be as low as $36 million. (See Force10 Powers Telx, Force10 Deployed in Bahrain, and Force10 Shrinks 10-GigE.)

And it's still looking to innovate in the hosting and storage market, having branched recently into the increasingly important virtualization management space. (See Force10 Gets a View.)

Turin, meanwhile, claims more than 600 customers, including the top five mobile carriers in the U.S., and is believed to have revenues of around $60 million.

Turin, which is focusing on the carrier Ethernet, wireless backhaul, and converged access equipment markets, is clearly a company with ambitions. Only a year ago it paid $92.7 million for Carrier Access to buy its way into the growing wireless backhaul market and secure some major Tier 1 carrier customers such as AT&T Inc. (NYSE: T), and was bullish about its operator engagements and prospects during 2008. (See Turin Turns Up the Volume, Turin to Buy Carrier Access, and Turin Bulks Up With Backhaul Buy.)

It has also recently secured new financial backing from Dubai-based private equity firm Millennium Private Equity, which acquired a minority stake in the vendor for an undisclosed sum (believed to be around $15 million).

Force10 declined to comment on the merger prior to its official announcement, while Turin couldn't be reached as this article was published. The merger marks something of an inglorious end to Force10's long-awaited IPO plans, which had kept it on our "Top 10 Private Companies" list for years. The company had been talking about a public listing since 2004, and raised more than $400 million as a stand-alone company, including a $113 million round in February 2007. (See Force10 Round Hits $113M , LR Reshuffles Private Companies List, and Force10 Networks Inc.)

— Ray Le Maistre, International News Editor, Light Reading

Hanover_Fist 12/5/2012 | 4:15:02 PM
re: Force10, Turin to Merge Is this the end of the era or will Force10 somehow pull a rabbit out of it's collective (albeit substantial capital reduced) VC hat.

I'm willing to state, without knowing the exact details of this so-called 'merger,' that the light they think they see at the end of this industry downturn tunnel is, in actuality, a high speed train coming at them from the other side.

Force10 = 10 years of unprofitable VC investment, 10 years of mismanagement and missed sales opportunities, 10 years of constant turnover at the executive level, and 10 years of being too late at the merger/buyout dinner table.

R.I.P. Force10 - you were once a contender...too bad you couldn't ever land the knock out punch.
Pete Baldwin 12/5/2012 | 4:15:02 PM
re: Force10, Turin to Merge Addendum: Speaking to Turin and Force10 just now, they're saying their combined revenues are in excess of $200M.

So, it does seem feasible that Force10 is in that $50M-$100M category.
digits 12/5/2012 | 4:15:02 PM
re: Force10, Turin to Merge Depends on the criteria used...

I believe Force10 is in that range of $50-100 and that ZoomInfo likely has old(ish) data.

But... is $200 million the combined revenues for 2008, or any actual 12-month trading period, or is that the 12-month run rate based on one quarter?

Ray
paolo.franzoi 12/5/2012 | 4:15:01 PM
re: Force10, Turin to Merge
Okay, lets see what is rational...

Lets call CAC - $50M.
Lets call the rest of Turin - $50M
Does F10 have $100M?

I am not arguing that my numbers are right. For example, this would require an expansion of CAC. I am just saying that OVER $200M would require that Turin TODAY is $100 - $150M. That seems too high to me.

seven
Hanover_Fist 12/5/2012 | 4:15:00 PM
re: Force10, Turin to Merge As a private company, Turin/F10 can make any statements they want...they don't have to prove anything.

Who are their main customers? How much product have they purchased and how many devices have they returned? At what discount did they make these purchases? What were the terms of these deals? Whose systems did they replace?

All interesting questions that will never be honestly answered.
bollocks187 12/5/2012 | 4:14:58 PM
re: Force10, Turin to Merge
Well on paper I am sure they are more financial sound than some of the Banks and motor companies.

If you look at this datacomm/telecom industry as a whole Turin and Force10 have done exceptionally well to reach this point.

While you could be negative about the merger to me it is the natural progression of things combined they are a stronger company with a chance to become succesful. They clearly have 'very good' products that customers buy or they would not even be here.

kd2000 12/5/2012 | 4:14:56 PM
re: Force10, Turin to Merge Interestingly the ex F10 CEO is now at Brocade!
Why would he leave F10 to join Brocade! May be he doesn't much future ahead! or Was he pressured to leave if this in the works already then!
Iipoed 12/5/2012 | 4:14:54 PM
re: Force10, Turin to Merge They have no margin business. Still sucking money from the VCs.
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